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Sunwing and Signature plan to merge

Struggling tour operator Signature Vacations, its SellOffVacations retail division and $101 million are being transferred by their British owner to a new Canadian partner that has been more successful in navigating the current tough market.

Tues., Sept. 29, 2009

Struggling tour operator Signature Vacations, its SellOffVacations retail division and $101 million are being transferred by their British owner to a new Canadian partner that has been more successful in navigating the current tough market.

Sunwing Vacations, part of a travel business owned and run by the Toronto-based Hunter family, will absorb its money-losing rival under a strategic alliance with U.K.-based TUI Travel PLC that was announced Tuesday.

The move will create a larger company that is better protected from the vagaries of an industry that has taken successive beatings from high fuel prices, the economic downturn and, most recently, last spring's flu-related travel advisory about Mexico and other vacation destinations.

However, the two merging businesses have fared very differently. Over the last five years, the Hunter family's Sunwing Travel Group has seen revenues increase more than 20-fold from $30 million to $660 million and says it has maintained underlying profitability.

Meanwhile, First Choice Canada, of which Signature Vacations is a division, lost $20 million in the first half of the current financial year. First Choice Canada is owned TUI Travel PLC of Gatwick, England.

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Airline analyst Jacques Kavafian of Research Capital described the merger as an "amazing move" for Sunwing.

"The problem with Signature Vacations is it's always been badly managed," Kavafian said.

"It's probably the weakest link in the business in Canada, and now Sunwing can do phenomenally well with Signature because they're getting $400 million of revenue and they can almost instantly turn that into a profitable business."

He added that although the move represents further consolidation in an already shrinking industry, consumers shouldn't worry about an increase in prices. The new company will still be competing with vacation business run by Air Canada (TSX: AC.B), WestJet (TSX: WJA), Transat AT (TSX: TRZ.A) and Sunquest Vacations, meaning they'll have to keep their prices low.

Sunwing said consumers should expect more choices from the new company.

"The proposed amalgamation of tour operators will create a stronger company better able to compete against Canada's leading tour operators, while offering a broader range of travel destinations to the travelling public," stated Colin Hunter, chairman and majority shareholder of the Sunwing Travel Group.

He said the proposed company will be in a position to improve its product range and offer competitive prices with increased efficiencies.

The company didn't disclose what type of efficiencies it anticipates or how employees of the two businesses will be affected. However, Sunwing chief operating officer Stephen Hunter said the combined company aims to grow.

"As one of Canada's fastest growing companies with combined revenues of $900 million, along with the improved operational efficiencies, complementary product mix and a growing retail distribution, our business will be well positioned to continue the growth and profitability curve we have achieved over the years," said Stephen Hunter, who will become president and chief executive of the new Sunwing.

The Hunter family will retain control of the new company in partnership with Signature owner TUI Travel PLC, which operates in approximately 180 countries worldwide.

As part of the deal announced Tuesday, TUI Travel will contribute $101 million and its Canadian operations including Signature Vacations to the new venture.

In return, TUI Travel will get a 25 per cent voting interest and 49 per cent ownership in the Sunwing Travel Group.

The vacation travel business, which offers all-inclusive vacation packages, typically to sun destinations like Mexico and the Caribbean, has had a tough time as recession-conscious consumers cut back spending on travel.

Since then, some airlines have begun reworking their operations, slashing the number of destinations they serve and reducing their overall flights to battle a slowdown in travellers.

In April, tour operator Conquest Vacations went out of business, blaming tour industry overcapacity and price wars. The collapse left vacationing Canadians stranded abroad, with many forced to cover hotel bills and other costs the company didn't pay before it went under.

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